What Are the Benefits of Indiana's 529 Savings Plans?
You Can Get a Significant Tax Credit
Families putting together a college savings plan often consider 529 Plans, which offer tax-advantaged ways to save money, as a potential option. With a 529 Savings Plan, families can begin contributing to a child's college fund as soon as the baby is born. Through regular contributions from parents, family members and friends, the account grows over time, until there is enough to fund the child's education.
If enough money is saved through this vehicle, there is less stress at admissions time about applying for financial aid or searching for scholarships. Investments made in these accounts will grow free of federal and state income taxes. In addition, all withdrawals used for qualified higher education expenses are exempt from federal income tax. Some 35 states also waive state taxes on withdrawals, along with offering other incentives.
Beyond its benefits for savings, 529 plans also offer significant benefits for taxes as well. Through these tax-deductible plans, family members and friends can contribute to a child's college fund, and get a tax benefit for doing so. Over the years, with regular contributions and compound interest, the plan can grow significantly to provide for the child's educational expenses.
In Indiana, contributors also get a tax credit; if you invest, you can get 20% of your contribution, up to $1,000, as a tax credit.
This can be a beneficial way to lessen what you owe during tax season. Taxpayers claiming a state tax credit on contributions must keep the account open for at least one year to avoid recapture of the tax credit on distributions used to pay qualified education expenses.
Indiana has three options available through the CollegeChoice 529 Direct Savings Plan:
- CollegeChoice 529 Direct Savings Plan: This plan is offered directly from the state. It offers an age-based option and several static options. This plan has higher fees than the national average, but has an established history of good returns.
- CollegeChoice Advisor 529 Savings Plan: This plan is sold exclusively through an advisor. There are age-based and static options. If you choose an age-based option, it starts out aggressively, with most investments in stocks. As the child ages and gets closer to college, the investments get more conservative to protect the money contributed. This plan does have fairly high fees, but with the tax credit and strong returns, this is still an excellent choice for investing.
- CollegeChoice CD 529 Savings Plan: Four FDIC-insured options are offered in this plan: (1) the CollegeSure CD with a variable interest rate pegged to a private-college tuition index, (2) the InvestorSure CD with an interest rate pegged to a percentage of the increase in the S&P 500 Index over a five-year period, (3) fixed-rate CDs with one-year or three-year maturities, and (4) the Honors Savings Account, a high-yield savings account available from College Savings Bank, a Division of NexBank SSB.
The minimum contribution to get started is very low, just $25. This allows families to get started even with modest funds. In Indiana, 529 plans can have a maximum of $298,000. Anyone over the age of 18, who is either a U.S. citizen or legal resident, can make contributions to a plan, even if they live outside of the state.
Indiana does not have age restrictions, nor does it require a student to attend college within a certain amount of years after graduation. If your child decides to work for a few years before going to school, the 529 savings plan will stay in place for his or her use. If your child decides she doesn't want to go to college at all, the savings can still be used. You can change the plan's beneficiary at any time, so you can give the money to a sibling, niece or friend for education expenses.
If you withdraw the money for your own needs, outside of education, there may be substantial tax penalties. This decision should be made with care, as the penalties and taxes can take up a significant chunk of your savings.
Starting an Indiana 529 savings plan gives you the stepping-stones toward you and your child’s educational goals.